Trouble in Paradise Newsday 06.13.03 Can the struggling Caribbean air transport industry set aside internal=20 squabbles and find a recipe for success in the face of increasing US=20 competition? Boasting crystal clear waters, white sandy beaches, lush=20 vegetation and breathtaking sunsets, the Caribbean has long been a sunspot= =20 of choice for European and US leisure travellers. Even in the aftermath of= =20 September 11 2001, the Caribbean=92s closeness to the US mainland and its=20 accessibility by air from most major US gateways saw American tourists=20 continue to flock there, albeit in fewer numbers. In contrast, the=20 Caribbean saw a steeper drop-off in European traffic during the same=20 period. By early February 2003, however, the Caribbean Tourism Organisation= =20 was predicting that tourism would this year recover to 200 levels and=20 resume real growth in 2004 =97 barring a war in Iraq. US airlines, however, are optimistic that the Caribbean will continue to be= =20 one of the fastest growing segments in the industry. Even as they bleed red= =20 ink, carriers such as American Eagle Airlines, Delta Air Lines and US=20 Airways are expanding services to the Caribbean. US-owned regional start-up= =20 Caribbean Sun Airlines, a sister to Antigua-based Caribbean Star Airlines,= =20 is injecting competition into the market by initiating services from San=20 Juan, Puerto Rico to several Caribbean islands. While US carriers turn to=20 the Caribbean for growth, the region=92s own airlines =97 which for years= have=20 gone from one financial crisis to another =97 are downsizing, citing=20 increased security, insurance and fuel costs, as well as the softening in=20 the market. Caribbean international carriers, including Air Jamaica,=20 Bahamasair and BWIA West Indies Airways, as well as regional Liat, all seek= =20 government assistance. In addition, says Trinidad and Tobago-based BWIA, US= =20 majors are =93dumping capacity into the Caribbean=94, and discounting fares= to=20 a level that makes it difficult to compete. No North American carrier has=20 grown its Caribbean service more quickly in 2002 than US Airways. In the=20 past few months, the carrier, which has just emerged from Chapter 11=20 bankruptcy, has introduced services to the Bahamas, the Dominican Republic= =20 and Puerto Rico and boosted frequencies on several USA-Caribbean routes. The airline is also gradually building an intra-Caribbean operation, the=20 GoCaribbean network, which includes marketing agreements with Dutch=20 Antilles carrier Winair and Caribbean Star. US Airways declines to say if a= =20 codeshare with Caribbean Sun is in prospect. Such a partnership, however,=20 would boost the US major=92s chances to compete against American Airlines= and=20 its American Eagle subsidiary, the dominant regional carrier in the=20 Caribbean. St Kitts and Nevis-based Nevis Express was also involved in=20 GoCaribbean until financial difficulties forced it to slash its operations= =20 and pull out of the grouping in December 2002. Doug Leonard, US Airways=20 vice-president, international, says: =93A lot of people who live on the East= =20 Coast take their leisure trips to the Caribbean, so it is natural for us to= =20 grow our eastern-focused network down to the Caribbean. We break our=20 business into three pieces, domestic, Caribbean and the Atlantic, and of=20 those, the Caribbean was the best performer for the last year. We did carry= =20 reasonably high loads, probably mid-70 percentile, and we did pretty well=20 on the yields compared to what we were seeing throughout the rest of the=20 network.=94 US Airways does not intend to shelve its planned new services to= =20 the Caribbean, including flights to Bermuda next month. Dominant regional Delta, meanwhile, has initiated an assault on US Airways by increasing=20 services to the Caribbean and Florida. To boost its winter schedule, the=20 carrier expanded services from its Atlanta to Providenciales in the Turks=20 and Caicos, and from New York Kennedy to Aruba. It also added capacity on=20 its Aruba-Atlanta and Nassau, Bahamas-Cincinnati, Ohio routes. Continental= =20 Airlines and Northwest Airlines also are increasing flights to the=20 Caribbean. Keen to keep its edge in the Caribbean, American Eagle =97 whose= =20 Executive Airlines unit has hubs in Miami and San Juan =97 continues to=20 expand. It will add services between San Juan and Nevis from May 15, to=20 fill the void left by Nevis Express. The regional is also negotiating with= =20 Puerto Rico to open year-round services to Vieques by mid-year. Plans are=20 in place to expand services to Nassau and add charters to Cuba. American=20 Eagle hopes to initiate flights between San Juan and Georgetown, Guyana,=20 via Port-of-Spain, Trinidad, as well as on a San=20 Juan-Port-of-Spain-Suriname-Guyana routing. =93Because of the war, this=20 summer people are coming to the Caribbean. People believe the Caribbean is= =20 safe because it is close to the mainland USA,=94 says Pedro Fabregas,=20 director of sales, marketing and planning for American Eagle=92s operations= =20 in Florida and the Caribbean. By the end of this year, American Eagle will retire its 16 ATR 42s and=20 increase utilisation of its 48 ATR 72s. Eventually, says Fabregas, American= =20 Eagle plans to acquire regional jets =93that can seat 70 passengers, but=20 which have capacity for 100=94, noting that Caribbean nationals haul large= =20 amounts of luggage back and forth. For some Caribbean carriers, the=20 continued expansion by US airlines to the Caribbean has proved to be a=20 double-edged sword at a time when international traffic is down as much as= =20 20 percent. Increased US flights mean more feed to Caribbean regional, but= =20 it spells more competition to the area=92s international carriers. =93The US= =20 carriers can afford to deeply discount fares to the Caribbean to get new=20 revenues. So while they can go after the cash revenue of low fares, what=20 they are doing is eroding a bedrock of a fares base that BWIA operates on.= =20 As a national carrier, our hands are tied,=94 says BWIA. Safety handicaps Exacerbating BWIA=92s position is the fact that Trinidad and Tobago is=20 designated Category 2 under the US Federal Aviation Administra-tion=92s=20 International Airlines Safety Assessment Programme, meaning the country=92s= =20 civil aviation authority does not meet ICAO safety standards. As a result,= =20 BWIA is restricted from expanding its services to the mainland USA,=20 changing equipment on Caribbean-USA routes or developing its codeshare with= =20 United Airlines, making competition against US carriers =93a one-handed=20 fight=94, says BWIA. Also hurting from a Category 2 rating is the=20 Organisation of Eastern Caribbean States (OECS), which comprises Anguilla,= =20 Antigua and Barbuda, the British Virgin Islands, Dom-inica, Grenada, St=20 Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. To regain=20 Category 1 status, the grouping must upgrade its Directorate of Civil=20 Aviation (DCA) office to an official authority vested with much greater=20 power to regulate and manage the OECS civil aviation system. The island=20 members must also harmonise their aviation legislation, most agreeing to=20 switch over from a UK regulatory model to one that mimics Transport Canada.= =20 Without a Category 1 rating, the OECS is also prevented from entering into= =20 fruitful discussion with the USA about an open skies agreement. =93The OECS is using Great Britain=92s CAA rules and regulations, which are= not=20 bad rules if you=92re flying a Boeing 747 in bad weather between Iceland and= =20 England. But that same set of rules don=92t work for flying a Britten-Norman= =20 Islander between two islands with nine passengers or less,=94 says Nevis=20 Express president Allen Hadaddi. But the OECS=92s transition to a civil=20 aviation authority has proven time consuming, much to the dismay of even=20 the smallest Caribbean operators. SVG Air, a charter and scheduled operator= =20 at Saint Vincent and the Grenadines, wants to expand to the USA, but its=20 plans are stifled. =93We have three (Rockwell) Commanders, two Cessna 402s,= =20 three (Britten-Norman) Islanders and one (DHC) Twin Otter. We wanted to add= =20 a (Cessna) CitationJet last year, but we couldn=92t take it into the USA, so= =20 we didn=92t do it,=94 says managing director Paul Gravel. SVG and other=20 Caribbean regional hope that a transition to a civil aviation authority=20 will bring a change to DCA regulations governing pilot duty limitations.=20 The pilot duty limitation differences between the USA and the OECS are=20 inequitable, says Gravel, noting that a flightcrew working for American=20 Eagle from San Juan may operate for 14 hours a day, whereas flightcrew=20 working for Liat or Caribbean Star is permitted only to operate nine and a= =20 half hours a day. =93This effectively means that a US carrier can employ 47= =20 percent fewer pilots to achieve the same amount of work,=94 says Gravel.= =93For=20 an OECS airline that employs 90 pilots, the savings incurred by reducing=20 the number of pilots by one-third would equate to $32 million over 10=20 years.=94 The millionaire owner of Liat=92s biggest rival, Caribbean Star,= has=20 managed to strategically bypass Category 2 restrictions. Allen Stanford=20 founded Caribbean Sun and based it in Category 1-rated Puerto Rico. He=20 envisages Caribbean Sun connecting with Caribbean Star to provide one-stops= =20 throughout the region, posing competition to American Eagle. Meanwhile,=20 Stanford is moving Caribbean Star=92s Antigua headquarters to St Kitts,= where=20 there are more relaxed =93route rights and a host of economic benefits=94,= says=20 Caribbean Star chief executive Paul Moreira. Stanford=92s organisation also= =20 plans to redevelop St Kitts Robert L Bradshaw Airport and create a=20 fixed-base operation to handle private jets. Lack of co-operation At least part of the long-running crisis in the Caribbean air transport=20 industry is due to a lack of co-operation, experts say. Caribbean carriers= =20 are generally owned in part or wholly by the indigenous island states and=20 each country is proud and protective of its own airline. In Miami, some=20 small Caribbean airlines operate limited daily services to the islands, but= =20 refuse to even share the same booths at the airport. =93Instead of sharing= =20 costs, they try to kill each other,=94 says Carlos D=E1vila, the director of= =20 transport for the Association of Caribbean States (ACS), a political body=20 that helps guide policy about trade, tourism and transport throughout the=20 region. Caribbean nations have never signed a multilateral aviation accord= =20 that would give the airlines broad blanket rights to fly between each=20 island, fly across territories without landing, making stops for=20 non-traffic purposes and operate with third, fourth and fifth freedom=20 rights. D=E1vila hopes the fall-off in bookings will force ACS members to=20 agree in principle to a multilateral aviation accord this summer. =93We need= =20 to do it. With the crisis in Iraq, the tourism sector is going to suffer,=20 especially with a decrease in the number of bookings,=94 he says. Even with= =20 unanimous ACS member agreement, however, such an accord cannot be put into= =20 effect until one-third of individual island governments ratify it. Although= =20 airline officials have long paid lip service to plans for airline=20 co-operation, the most significant teaming to date has been that of Liat=20 and its minority stakeholder BWIA, a partnership that has been limited at=20 best. With both companies in need of fresh financial assistance from the=20 government, Caribbean Community leaders have begun a dedicated push for a=20 more formal tie-up between the two airlines. John Gilmore, the founding member of the Air Jamaica Acquisition Group that= =20 negotiated the purchase of Air Jamaica from the Jamaican government, says=20 Air Jamaica, BWIA and Liat =93need to be merged into a single organisation= =20 for scheduling and planning. I would assume that Cayman Airways and=20 Bahamasair would probably participate as well, since they are relatively=20 small and they both lose money. Every bailout (the Caribbean governments=20 give), the always say =91it=92s the last one=92. They have to come up with a= =20 solution.=94 But Caribbean airline executives are sceptical about a merger.= =20 =93Regional integration will never work because West Indians can never work= =20 together. Each one will want to be the boss,=94 says Gravel. =93How can they= =20 help each other if they are both bankrupt? Liat and BWIA have been cutting= =20 each other=92s throats for years.=94 Air Jamaica chief executive Chris Zacca= =20 adds: =93We are not interested in a merger. We would be much more interested= =20 in functional co-operation, including schedules and codesharing as well as= =20 accounting and some technical co-operation and purchasing.=94 A Trinidad and= =20 Tobago-funded study into the feasibility of a merger is due to be released= =20 in May. Whether Liat will be able to stay afloat to see such a merger come= =20 to fruition remains to be seen. For 46 years, the regional has been the=20 backbone of the transport system between the islands of the eastern=20 Caribbean, operating Bombardier Dash 8 turboprops. But the economic=20 downturn, coupled with competition from rival Caribbean Star, has left Liat= =20 in need of $37 million in investment over the next year. Even though Liat=20 has initiated cost cuts across the board, without new funds, says chief=20 executive Garry Cullen, the carrier faces aircraft repossession and will=20 have difficulty in paying its debts to Bombardier, GE Capital Aviation=20 Services and Pratt & Whitney. Privatisation plea The former prime minister of Saint Vincent and the Grenadines, Sir James=20 Mitchell, says governments must stop bailing out cash-strapped Caribbean=20 carriers and seek to privatise them. =93The Caribbean governments are just= =20 pouring money into the (region=92s) airlines without demanding serious=20 restructuring,=94 he says. Like BWIA and Liat, Air Jamaica is also turning= to=20 the government for assistance. The carrier needs up to a $30 million=20 government is likely to demand a debt for equity swap in the deal. Air=20 Jamaica will remain majority owned by private shareholders, says Zacca. He= =20 says the carrier, which has pulled down a chunk of its US-Caribbean=20 schedule and initiated layoffs, is confident that after the war, the=20 carrier will recover. =93I feel strongly that when our yields come back,=20 without fleet rationalisation, and with other cost-cutting measures that we= =20 have been working towards over the last few years, we would be in excellent= =20 position to be profitable,=94 says Zacca. The company hopes to eventually=20 expand its codeshare with Delta, and launch services to new US=20 destinations, once a newly signed USA-Jamaica open skies agreement goes=20 into effect in the next few months. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Mas Site: www.tntisland.com/tntrecords/mas2003/ Site of the Week: http://www.carib-link.net/naparima/naps.html TnT Webdirectory: http://search.co.tt *********************************************************